Bank equity stakes in borrowing firms and credit market competition

Rapisarda, Grazia (2000) Bank equity stakes in borrowing firms and credit market competition. Southampton, UK, University of Southampton, 26pp. (Discussion Papers in Economics and Econometrics, 0022).


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In this paper we analyse the effect of banks holding equity stakes in borrowing firms on the equilibrium level of interest rates and on the tendency of the borrowing firm to establish tighter links with the shareholding bank. Equity claims are defined as rights to receive dividend payments as well as private information about the firm. By modeling competition as an asymmetric common value auction, we show that when one of the competing banks in the credit market holds an equity claim in the firm, the equilibrium expected cost of debt increases with the size of the equity stake and the firm tends to concentrate his credit relationships around the shareholding bank

Item Type: Monograph (Discussion Paper)
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Subjects: H Social Sciences > HG Finance
H Social Sciences > HB Economic Theory
Divisions : University Structure - Pre August 2011 > School of Social Sciences > Economics
ePrint ID: 33122
Accepted Date and Publication Date:
Date Deposited: 19 Jul 2006
Last Modified: 27 Mar 2014 18:20

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